For JD Wetherspoon PLC (LSE:JDW), it is another case of steady pints but frothy costs.
The pub chain reported full-year profits that were broadly in line with expectations, but the shares slipped 4% to 640.5p as investors focused on rising debt and the continuing pressure of higher wages and taxes.
Operating profit came in at £146.4 million, slightly ahead of forecasts, with a wafer-thin margin improvement to 6.88%.
Pre-tax profit was £81.4 million, also just above estimates, though higher interest charges and tax left earnings per share at 48.1p, shy of the 49.6p analysts had pencilled in.
The group remains a busy operator. Last year it spent £117 million on capital expenditure, opening three pubs and selling nine, which trimmed the estate to 794 sites.
It also acquired eight freeholds and plans to open 15 managed pubs in the 2026 financial year, as well as adding more franchised outlets. Share buybacks have been stepped up, with 10.6 million shares repurchased for £66.8 million.
That has, however, helped push net debt up to £724 million, equal to 3.8 times earnings before interest, tax, depreciation and amortisation, the second-highest leverage in the sector.
Trading is positive but unspectacular. Like-for-like sales rose 3.2% in the nine weeks to the end of September, and management said it expected a “reasonable outcome” for the current year.
The challenge is inflation: labour costs alone are expected to add £60 million on an annualised basis, with little room to offset this through price rises without denting volumes.
The shares have gained almost 11% so far this year but are flat over the past month, and now trade on about 10 times forward earnings, in line with the sector.
Panmure Liberum, which keeps its “hold” rating and 695p price target, is cautious on the longer-term prospects for margins, even if buybacks offer a measure of support.
For now, Wetherspoon looks caught between steady sales growth and a cost base that keeps refilling the glass.